Such a last-minute acquisition of uranium is very rare, notes Per Jander of WMC, a trader. Services usually take delivery two to three years after signing a contract. The turmoil is just one illustration of the war’s aftermath on a once-quiet market already squeezed by rising demand, supply shocks and speculation. In the week to September 18, the spot price of uranium hit $65 a pound, its highest since 2011, reports uxc, a data firm. At the industry’s annual gala in London, which attracted a record 700 delegates this month, some warned it could reach $100. The two largest producers are sold out until 2027; some utilities are expected to be short for 2024.
Only 85,000 tons of uranium are used each year. This compares with 170,000 for niche metals such as cobalt and many millions for industrial ones such as copper. Unlike coal or gas plants, nuclear reactors cost a lot to build but little to run, so utilities mostly choose to keep them going regardless of, say, the economic cycle, making demand for fuel predictable. It also means that utilities can’t afford to run out, so they buy the stuff through long-term contracts.
Most of the supply comes directly from mines. Canada and Kazakhstan, two reliable exporters, account for 60% of such “primary” supply. A quarter of total global supply arrives from “secondary” sources. Spent fuel blocks, replaced every three to four years, are re-enriched and reused. Fuel is also made by diluting weapons-grade uranium, which contains more than 90% fissile elements, to concentrations of only 3-4%. In the two decades after the cold war the dilution of only 30 tons per year displaced 10,000 tons of annual mine production. More supply is regularly released from stockpiles. America, China, France and Japan hold a combined stockpile worth years of global use, which can be drawn from when prices are high.
This quiet business is now being shaken by two forces. One is a resurrection claim. For years after the Fukushima disaster in 2011, the closing of plants in Japan, Germany and elsewhere pushed the market into surplus. But the search for permanent sources of low-carbon energy, and Russia’s war in Ukraine, have led governments back to nuclear power, which emits about the same as wind power and can operate even if pipelines are shut down. About 60 new reactors are under construction, which should add another 15% to the world’s nuclear power generation capacity over the next decade, according to Liberum, a bank. Small “modular” reactors — cheap and easy to build — could turbocharge demand for fuel. The World Nuclear Association, an industry body, predicts they could make up half of France’s nuclear capacity by 2040.
The bright prospects of uranium are not lost on financiers. In recent years several listed funds have launched. Sprott Physical Uranium Trust and Yellow Cake, the two largest, bought 22,000 tons in the last two years, equivalent to more than a quarter of the annual demand. Both are set up for the long term, with no set date or target price at which they will liquidate their holdings.
Meanwhile, supply looks fragile—the second reason prices are rising. Early panic aside, Russian ores can still be obtained. But a coup in Niger in July endangered 4% of mined supply. Last week Orano, France’s state-owned giant, said it had halted its ore processing there due to a shortage of critical chemicals. Logistical headaches are causing Kazatomprom, the main Kazakh supplier, to ship less uranium than expected (it typically goes through Russia). Cameco, Canada’s champion, recently cut its production forecast by 9% after hiccups at two mines.
All of this is likely to keep the market in deficit next year, as it has been since 2018. External shortfalls remain unlikely, however. Major utilities are holding back shares. And the fuel blocks inserted into operational reactors still have one to three years of life left, with an annual extension possible at limited costs. Most also have the next block ready to go. Thus the risk of running out lies more than four years in advance.
That leaves time for supply to respond. Cameco and Kazatomprom, which have a lot of unused capacity after cutting production during the dismal 2010s, will not like to see higher-cost producers grab market share. Liberum’s Tom Price estimates they could add another 15-20% to global supply in just 12-18 months. If this does not tame the market, then a continued rise in price will encourage the opening of new mines. Jonathan Hinze of UXC believes that a spot price of $70-80 would be enough to start many projects. Supplies probably won’t last too long either. Niger’s junta has a beef with France, but not with China, which runs other mines in the country. If all else fails, Kazatomprom can always decide to export uranium by air.
So the most likely outcome is high prices for a few years, with a surplus returning in the middle of the decade. No one foresees a repeat of 2007, when buying of the first uranium fund and floods at large mines combined to push the spot price past $135 a pound. Utilities have ample room to absorb price shocks anyway. Because uranium is heavily processed, raw materials are worth less than half of the finished fuel, which itself accounts for only 10% of a plant’s operating costs (compared to 70% for natural gas). The accumulation is more important to speculators than the cost of what comes out of your socket.
© 2023, The Economist Newspaper Limited. All rights reserved.
From The Economist, published under license. The original content can be found at www.economist.com
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Updated: 24 Nov 2023, 18:47 IST